Project Summary During lung development, progenitors reside at the tips of the branching epithelium (`bud tip progenitors') and give rise to every cell type in the adult lung epithelium, including basal stem cells, which are essential for adult airway homeostasis and regeneration after injury. Despite the critical role of basal cells in adult lungs, little is known about mechanisms regulating the transition from a progenitor cell to a basal stem cell during lung organogenesis. It is appreciated that bud tip progenitors first give rise to an intermediate SOX2+ proximal progenitor cell, which requires the transcription factor P63 for subsequent differentiation into SOX2+/P63+ basal cell (Daniely et al. 2004), but the mechanisms regulating the transition between these cellular states remains unclear. In order to address this significant gap in our knowledge, the goal of this proposal is to elucidate the fundamental mechanisms regulating the differentiation of bud-tip progenitors into lung basal stem cells using genetic mouse models and human fetal lung explant cultures. TGF? signaling is critical for normal lung development (Kaartinen et al. 1995), but has not been implicated in basal stem cell development. Preliminary data in mouse embryonic lung and human fetal lung explant cultures suggests that TGF? signaling plays an important role in lung basal stem cell differentiation. Consistent with this in vitro data, in vivo conditional genetic models further implicate TGF? in the development of basal stem cells. Furthermore, in silico analysis predicts that several binding sites for SMAD proteins, the downstream effectors of TGF? signaling, exist within the first intron of the P63 locus. Together, this data led to the hypothesis that activation of SMAD-dependent signaling directly activates P63 and is required for the differentiation of airway progenitors into basal stem cells in both mice and humans. This proposal will address the hypothesis through two independent specific aims. Aim 1 will functionally assess whether SMAD activation is necessary and sufficient for basal cell differentiation during embryonic lung development. Aim 2 will determine if SMAD proteins directly regulate the expression of P63 by binding to enhancer sequences within the P63 locus. The proposed studies will unveil the mechanism of how bud tip progenitors give rise to basal stem cells during lung development. This knowledge is critical for harnessing the native power of this cell population to repair lung injury, and may lead to improved methods for deriving this population form pluripotent stem cells. Critically, this understanding may also provide insights into the regulation of basal cells during lung diseases, including squamous cell carcinoma.